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What has happened?

The impetus for introducing the Senior Managers and Certification Regime (SMCR) derived originally from the 2008 financial crisis and the lack of accountability subsequently shown to be present in the banking sector when the dust had settled. It was hoped by the FCA that the SMCR would improve the conduct of individuals in financial services and enable holding them to account for their actions. Currently, the SMCR applies to most solo-regulated financial services firms.

What do Payment Services firms need to be aware of?

Payments Services firms are not currently subject to the SMCR. A select few individuals at Payment Services firms are subject to less rigorous examination relating to their fitness and propriety than would be the case if SMCR was enforced. However, there is a growing expectation that the FCA will likely extend the SMCR to cover such firms in the near future. As recently as March 2023, in its Dear CEO letter to Payments Services firms, the FCA expressed concerns as to the root causes of issues affecting the sector, one of which was:

“A lack of appropriately knowledgeable and experienced personnel to provide payments services and issue e-money, including amongst key functions such as Money Laundering Risk office and other compliance staff”

and stated that payments firms should:

“Satisfy themselves that directors and individuals responsible for providing payment services (including agents), are fit and proper and have appropriate knowledge and experience.”

The FCA’s attention to the Payment Services sector has, unsurprisingly, coincided with growth in this sector in recent years, as more and more consumers are being exposed to potentially poor practice in this space. With the FCA’s Consumer Duty set to take effect from July 2023, implementing SMCR would be another step towards protecting consumers with Senior Management being held personally responsible for any poor consumer outcomes.

For those firms that want to do the right thing in the Payments Services sector, this move can only be seen as a positive step toward eliminating bad actors from the regulatory perimeter. Good firms will be able to demonstrate their credibility and reputation, as well as show how they have benefitted consumers in line with the Consumer Duty. It will also be clearer and more transparent to consumers which firms they can and cannot trust, as firms would be required to evidence that their senior leadership is SMCR approved or certified.

Candidates for senior roles will need to demonstrate not only their professional experience and expertise but also that they can measure up to the criteria of the SMCR. Senior managers will be expected to act with integrity, due skill, care, and diligence, as well as being open and cooperative with the regulator. Naturally, we would encourage this without SMCR, but expectations to prove these qualities will be more widespread for candidates.

At present, we are experiencing a more stringent and demanding set of requirements expected of firms before they are granted permission to enter the regulated space than we have seen in recent times. There are no signs of this abating, and nor should it. Incorporating the SMCR into this assessment of firms will further increase the expectations of applicants and the overall standard of those applications.

How can we help you?

Our approach at Thistle Initiatives is to get ahead of this potential (but likely) increase in standards from the regulator by ensuring our clients have considered how this may affect their organisation and what they can do to guarantee as smooth a transition as possible to the Senior Manager and Certification Regime.

Thistle Initiatives has supported firms for over 10 years as a trusted SMCR compliance and regulatory advisor. In addition to assisting, you as and when required, our team of specialists can provide ongoing guidance on how to meet the myriad of regulations. Our team will not only keep you up to date with new regulations on the horizon but also ensure you are fully compliant today.

Are you looking for help with your SMCR compliance, or more general regulatory questions? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.